case studies

Question 1

Unit 1 case study - Triodos bank

Answer 1

• Global pioneer using the power of finance to support projects benefiting people and the planet
  
  • Values people, planet and profit and takes into account in its strategy, structure, lending and culture
  • 1980 - founded and overseen by a supervisory board with its shares administered by a separate foundation
  • Only lends to organisations that create social, environmental and cultural value like charities, social businesses, community projects and environmental initiatives
  • 50% of loans are in environmental sector
  • Financing 381 projects by the end of 2016
  • Generating a capacity of 2400 MW of energy
    Financed 33000 hectares of organic farmland and 28000 hectares of nature and conservation land

Question 2

Unit 1 case study - WorldPay

Answer 2

founded 1997, couldnt work without natwest expertise, idea when online stores didnt have different currencies, 126 currencies over 146 countries, over 31 million transactions a day

Question 3

Unit 1 case study - Facebook

Answer 3

• 2018 - Mark Zuckerberg - wanted to explore and understand cryptocurrency and blockchain technology
  
  • June 2019 - Libra association - a new cryptocurrency that has backing of some of the largest companies meaning it could be accepted anywhere traditional payment cards are used
  • Their aim is to serve the 1.7billion adults who don’t have access to traditional financial services to facilitate the ‘unbanked’
  • Hoped to become a global currency that could rival the US dollar
  • Questions were raised as it had the potential to disrupt the entire financial industry
  • G7 (group of 7) - was set up to assess the risks and a statement was issued by data protection officials which they raised concerns, set out privacy expectations and urged data protection policy information.
  • United states lawmakers portrayed libra as a threat to users privacy, the banking system and national security
  • Concerns that libra could raise the risk of money laundering
  • September 2019 - libra association seeking to apply for licensing as a payment system in Switzerland
  • Reports being produced for G7 finance ministers in October but no update as of yet.

Question 4

Unit 1 case study - peer to peer lenders (p2p)

Answer 4

• Enables lenders and borrowers to deal with each other without using a bank
  
  • Put investors who have money they want to lend in touch with borrowers and arrange and manage the loans who both pay the p2p provider a fee for the service
  • Lenders place money with a peer to peer online platform to then be lent to lots of different borrowers as many small loans
  • Borrowers can borrow small amounts from many different lenders and the platform collects the repayments of interest and capital from each borrow to pass back to the lenders
  • Lenders run a higher risk of losing their money and borrowers have to select and bid for a loan which requires more work and financial capability
    December 2018 - Zopa granted a banking licence becoming the first p2p group to compete with mainstream banks

Question 5

Unit 2 case study - cashless festivals

Answer 5

2012-2019 saw 2145 high street branches in the UK closing, 17% still visit a branch mainly old/retired, many don’t like online technology and prefer to use cash, affect vulnerable customers

Question 6

Unit 2 case study - central bank digital currency

Answer 6

• 2019 - the international monetary fraud reported several banks are exploring the issue of introducing central bank digital currency (CBDC).
  
  • Research published on implications on financial stability, structure of banking sector, entry of non-bank financial institutions and monetary policy transmission.
  • For some, the falling use of cash is motivating the study as an alternative, robust and convenient payment method.
  • It can reduce the chances of a few large providers dominating the system.
  • In developing countries, more focus on improving operational and cost efficiency.

Question 7

Unit 2 case study - idea bank

Answer 7

• Poland - digital banking champion in Europe, middle-east and Africa
  
  • Idea bank - well known for entrepreneurs showing 60% didn’t have a regular office space
  • Idea hub - free co-working spaces designed for entrepreneurs to meet and hold business meetings
  • Idea hub express - involved branches and co-working spaces on commuter trains
    The idea bank carriage feature desks, conference spaces, office supplies, Wi-Fi and coffee with priority to idea bank customers

Question 8

Unit 2 case study - PayPal

Answer 8

Market capitalisation - $139 billion, 9.9 bill transactions, global payment platform allowing anyone with an email to receive and send payments, guarantees a refund if an item purchased online doesn’t arrive or isn’t as described

Question 9

Unit 2 case study - street performers

Answer 9

• China - individuals and businesses use mobile and online payments with the central bank having to announce a crackdown against businesses refusing to accept cash.
  
  • Its regarded as the most advanced for mobile payments in the world with some cities close to becoming cashless.
    A QR code is scanned ready to make the payment.

Question 10

Unit 2 case study - Sweden

Answer 10

• Mainly use debit cards or their new payment mobile app ‘swish’.
  
  • Sweden’s central bank estimates 20-50% decline in use of cash

Question 11

Unit 2 case study - Sweden

Answer 11

• Mainly use debit cards or their new payment mobile app ‘swish’.
  
  • Sweden’s central bank estimates 20-50% decline in use of cash

Question 11

Unit 3 case study - CBI code of conduct and responsible lending

Answer 11

• Treating all customers and colleagues with respect and acting with integrity.
  
  • Developing and maintaining professional knowledge, acting with skill, care and diligence considering the risks and implications of my actions and advice.
  • Being open and cooperative with regulators complying with legal requirements.
  • Paying interest to customers and treating them fairly.
  • Observing and demonstrating standards of market conduct at all times.
  • Adding an honest and trustworthy manner.
    Treating information with confidentiality and sensitivity.

Question 12

Interest
The charge for a loan. Fixed (interest rates same or an amount of time), variable (vary in relation to a benchmark)
Capped interest - although can fluctuate subject to an interest cap
Simple interest - there’s no compounding of interest, determined by multiplying the principal by the rate by the time period.
Compound interest - interest on principle amount plus whatever interests already occurred

Interest rates
Standard variable rate (SVR) - standard rate of interest lenders use, rate borrowers are automatically switched to after fixed terms ended
Annual equivalent rate (AER) - for savings and current accounts in credit and effective annual rate (EAR) - for borrowing and overdrafts both are annualised rates of interest
Annual percentage rate (APR) - annualised interest rate including effects of both compounding interest and other non-interest charges

Standards of lending practice
Vision is to ensure personal and small business borrowers receive a fair deal from their lender and covers loans, credit cards, charge cards and overdrafts and for business customers commercial mortgages are covered too
Standards for personal customers: financial promotions and communications, product sale, account maintenance and servicing, money management, financial difficulty, consumer vulnerability
Standards for business customers: product information, product sale, declined applications, product execution, credit monitoring, financial difficulty, portfolio management, vulnerability

Borrowing and lending proposition (CAMPARI)
Character - borrowers integrity, credit history and background.
Ability - managerial and technical competence of a business owner
Means - establishing the borrowers means, looking at their assets and liabilities
Purpose - it must be legal, ethical, relevant and in line with the bank’s lending policy, it also helps establish the level of risk involved
Amount - may not accurately calculate how they need. Too little (not sufficient for purpose), too much (could affect their ability to repay)
Repayment - main sources (income, sale of an asset)
Insurance - security provides a secondary source of repayment in the event the primary source unexpectedly fails

Borrowing and lending proposition (ICE)
Interest - bank considers what rate to charge on loan to compensate for risk involved
Commission and fees - commission compensates the bank for administrative work involved in granting and monitoring the loan
Extras - any relevant products that could be offered to the customer like life insurance or payment protection

Credit score
Information held by credit reference agencies (our presence on electoral register, county court judgments made against us, bankruptcies, past and current credit agreements)
Credit score - number based on statistical analysis of current and past credit history. The higher the score the less risky a borrower
Fico score - calculated using payment history, amounts owed, length of credit history, new credit, credit mix.
Payment history - whether the borrower has paid past credit accounts on time (most important factor)
Amounts owed - if a person’s using a lot of available credit may indicate they’re overextended
Length of credit history - longer credit history will increase score
New credit - opening several credit accounts in a short amount of time represents a greater risk
Credit mix - takes into account all a person’s borrowing

Security for lending
Assets such as land, properties built on land, life assurance policies, stocks and shares
Guarantee - promise made to assume debt obligation of a borrower if they fail to pay what is due
MAST test - marketability (how easy it is to sell the asset) ascertain ability of value (how easy it is to value correctly) simplicity of title (how easily ownership can be proved) transferability of title (how easy for bank to gain ownership so it can sell the asset)

Responsible lending
Benefits to society - drives economic growth, leads to more efficient allocation and utilisation of resources, stimulates higher levels of saving, makes money available for socially and environmentally sustainable economic activities, makes funds available at low cost to disadvantaged sections of society
Detrimental effects - irresponsible lending can encourage irresponsible borrowing meaning effects customer and the bank also loses out when loans are not repaid

Unit 3 case study - CBI code of conduct and responsible lending

Question 12

Unit 4 case study - TSB bank

Answer 12

• April 2019 TSB was faced with technical issues after attempting to move to a new IT system.
  
  • Thousands of customers couldn’t access their accounts with many reporting they could also access others details.
  • Promoted a parliamentary enquiry with the banks chief resigning and a total cost of £330 million for the bank.
  • 80000 customers switched their banks with the bank losing approximately £105.4million in 2018.
    £125million spent on customer payouts, £49million in fraud£122million for the cost of fixing the systems and £34m in lost income.

Question 13

Interest
The charge for a loan. Fixed (interest rates same or an amount of time), variable (vary in relation to a benchmark)
Capped interest - although can fluctuate subject to an interest cap
Simple interest - there’s no compounding of interest, determined by multiplying the principal by the rate by the time period.
Compound interest - interest on principle amount plus whatever interests already occurred

Interest rates
Standard variable rate (SVR) - standard rate of interest lenders use, rate borrowers are automatically switched to after fixed terms ended
Annual equivalent rate (AER) - for savings and current accounts in credit and effective annual rate (EAR) - for borrowing and overdrafts both are annualised rates of interest
Annual percentage rate (APR) - annualised interest rate including effects of both compounding interest and other non-interest charges

Standards of lending practice
Vision is to ensure personal and small business borrowers receive a fair deal from their lender and covers loans, credit cards, charge cards and overdrafts and for business customers commercial mortgages are covered too
Standards for personal customers: financial promotions and communications, product sale, account maintenance and servicing, money management, financial difficulty, consumer vulnerability
Standards for business customers: product information, product sale, declined applications, product execution, credit monitoring, financial difficulty, portfolio management, vulnerability

Borrowing and lending proposition (CAMPARI)
Character - borrowers integrity, credit history and background.
Ability - managerial and technical competence of a business owner
Means - establishing the borrowers means, looking at their assets and liabilities
Purpose - it must be legal, ethical, relevant and in line with the bank’s lending policy, it also helps establish the level of risk involved
Amount - may not accurately calculate how they need. Too little (not sufficient for purpose), too much (could affect their ability to repay)
Repayment - main sources (income, sale of an asset)
Insurance - security provides a secondary source of repayment in the event the primary source unexpectedly fails

Borrowing and lending proposition (ICE)
Interest - bank considers what rate to charge on loan to compensate for risk involved
Commission and fees - commission compensates the bank for administrative work involved in granting and monitoring the loan
Extras - any relevant products that could be offered to the customer like life insurance or payment protection

Credit score
Information held by credit reference agencies (our presence on electoral register, county court judgments made against us, bankruptcies, past and current credit agreements)
Credit score - number based on statistical analysis of current and past credit history. The higher the score the less risky a borrower
Fico score - calculated using payment history, amounts owed, length of credit history, new credit, credit mix.
Payment history - whether the borrower has paid past credit accounts on time (most important factor)
Amounts owed - if a person’s using a lot of available credit may indicate they’re overextended
Length of credit history - longer credit history will increase score
New credit - opening several credit accounts in a short amount of time represents a greater risk
Credit mix - takes into account all a person’s borrowing

Security for lending
Assets such as land, properties built on land, life assurance policies, stocks and shares
Guarantee - promise made to assume debt obligation of a borrower if they fail to pay what is due
MAST test - marketability (how easy it is to sell the asset) ascertain ability of value (how easy it is to value correctly) simplicity of title (how easily ownership can be proved) transferability of title (how easy for bank to gain ownership so it can sell the asset)

Responsible lending
Benefits to society - drives economic growth, leads to more efficient allocation and utilisation of resources, stimulates higher levels of saving, makes money available for socially and environmentally sustainable economic activities, makes funds available at low cost to disadvantaged sections of society
Detrimental effects - irresponsible lending can encourage irresponsible borrowing meaning effects customer and the bank also loses out when loans are not repaid

Unit 3 case study - CBI code of conduct and responsible lending

Question 13

Case study : bank of England

Answer 13

The bank of England, regulates their banks, issues bank notes, sets monetary policies and maintains stability.
- Regulation, provides functions important to the financial system such as payment systems and clearing houses. It regulates and supervises 1500 banks building societies, credit unions, insurers and major investment firms.
- Bank notes are designed and printed by the bank of England.
- The bank operates monetary policy by moving the interest rate up and down with the decisions being made by the bank’s monetary policy committee.
The bank of England is responsible for the stability of the financial system providing critical services to the economy identifying and monitoring risks and taking action to reduce or remove when necessary.

Question 14

Unit 4 case study - using AI to assess credit risk

Answer 14

December 2018 - EWS created (early warning system) helps credit risk analysts make quicker and more informed decisions, collects and analyses large amounts of data to identify if clients are exposed to potential risk, the idea is that the earlier the risk is detected the better can serve clients to prevent losses. It uses financial and non-financial information.

Question 15

Unit 6 case study - ethical dilemmas

Answer 15

• Feel uncomfortable with a college who tells you the reason they achieve their sales targets is because they ‘gently pressurise’ customers to buy certain products and services
  
  • They instil fear that without certain products the consequences to their family could be disastrous.
  • Use kidder’s nine point model for making an ethical decision

Question 16

Unit 6 case study - the machine says ‘no’

Answer 16

• Algorithm produced to deny someone a small business loan yet it should have been accepted
  
  • A lending professional hasn’t looked at or been involved in the application
    Without anyone to take responsibility the problem is never addressed and the customer is left without any means of appealing.

Question 17

Chartered bankers strategic purpose - to lead the re-professionalisation and play a significant role in professionalising banking internationally with a view to rebuild trust and confidence in banks

Rules-based code - defines the rules expected to be followed, sets out details of what employees can or can’t do focusing on literal interpretation leaving little room for misunderstanding.
Principles-based code - sets out broad, high level principles or values guiding the behaviours and decisions of employees avoiding the need to prescribe rules for every situation. They are more flexible meaning professional judgement is needed.

The code - all individuals are require to work in a fair and honest manner to protect the interest of customers, colleagues and counterparties. If a member breaches the code they could be subject to disciplinary action

Principle 1
Customers - treating with respect includes being polite in all forms of communication, also includes being sensitive to circumstances and specific needs
Colleagues - disrespectful behaviour includes bullying and harassment as well as treating colleagues unfairly or discriminating against them
Counterparties - respecting counterparties also involves not deceiving them. Also, entering a manipulative or exploitative financial relationship with anyone would be disrespectful.
Respect - treating people respectfully not only face to face but behind their backs too as well as challenging other colleagues on their behaviours.
Integrity - maintaining consistently high moral standards.

Principle 2
Duty to be competent - an ethical duty because customers and counterparties have a right to expect competency.
Taking responsibility - failing to act responsibly is unethical because if things go wrong it effects everyone. It’s important everyone’s responsible in their actions and advice but also take responsibility for their implications for others especially if a mistake is made.
Being accountable - your responsible for the things that happen as a result of your actions.

Principle 3
Compliance - requirement bankers are open and cooperative with regulators providing with any information they require.
Openness - not only must they never mislead the regulators, they must cooperate in a genuine spirit of openness.

Principle 4
Identify customers interests - deciding what’s in a customer’s interest involves listening to their description of their needs and circumstances and applying expertise to whatever products/services they may be considering.
Apply judgment - apply judgement and read between the lines of what the customers saying to some extent.
Pay due regard - don’t do something unethical because it’s in your customers interest as it would be paying their interests more regards than due.
Be impartial and fair - includes not allowing personal interests to get in the way of the customers interests.

Principle 5
Ensure that behaviour doesn’t get in the way of the good and fair operation of markets.

Principle 6
Honesty - dishonest behaviours include intentionally deceiving or misleading people as well as including cheating behaviours.
Trustworthiness - crucial to the success of banking so customers can trust banks.
Impartiality - conflict of interest arises when a personal interest conflicts with a legitimate duty. Conflicts of interest threaten impartiality and ability to fulfil duties of your role.

Principle 7
Confidentiality - confidential information may not always be marked as confidential. There may be circumstances someone may ask you to keep information confidential however you have no duty to do so as in some circumstances a breach of confidentiality may be justified.

Ethics
Encourage thoughts around living a good life, rights and responsibilities and moral decisions.

Moral absolutism
The view that some things are always right and some things are always wrong.

Moral relativism
Says that what is right or wrong is what the majority of people view and is related to the particular place and time.

Ethics based on consequences
Utilitarianism - a theory based on consequences. The idea that everyone’s happiness counts and everyone’s happiness counts the same. Its impartial: all people affected should be considered and no one person’s happiness is more important. About maximising human well-being and the ethically right choice is the one producing the most happiness for the largest number of people.

An objection to the theory
Never know how things are going to turn out meaning it’s difficult to judge the rightness or wrongness however its argues we should judge the result on the expected consequences

Ethics based on duty
Deontological - something that is necessary. Distinctive as actions are made right by something other than consequences. Only an action done with good intentions is a right action regardless of the consequences.

Virtue ethics - trait or quality considered morally good.

Ethical dilemmas - instances of unprofessional and unethical behaviour can compromise ideas of what’s ethical and professional.

Organisation’s values - includes ethical values guiding the way the business is done and tells us what the organisation thinks is acceptable.

Ethics policy - sets out organisation’s commitment to high ethical standards and management of integrity risks usually detailing how it’ll be governed, implemented and monitored.

Code of ethics - document showing the organisations values and commitments to stakeholders setting out behaviours expected of employees.

Code of conduct - tell employees about rule and regulations to follow.

Psychological aspects of moral behaviour:

Moral sensitivity - being aware of how actions affect other people, being aware of the different courses of action and how each of these could affect people.

Moral judgement - about judging which option is the most morally justifiable.

Moral motivation - importance we place n moral values compared to others. Could be a problem if were not sufficiently motivated to put moral values higher up on our priority list.

Moral character - about having courage, conviction and confidence as well as resilient and persistent.

Stages of ethical decision-making:
1. Interpreting the situation
2. Planning courses of action
3. Considering the options
4. Arriving at the decision
5. Reflecting on the decision and action

Whistleblowing - a whistleblower doesn’t need to be currently employed by the organisation with the problem needing to be significant and the report made to someone outside the normal channels, someone in the position to take action.

Internal whistleblowing - when information is kept within the organisation but passed on outside normal channels.

External whistleblowing - when information is passed outside the organisation. It could be a professional body, an independent agency, or to the press.

What’s considered whistleblowing? - when someone raises a concern about danger or illegality that affects others. Also, they rarely have a personal interest in the outcome and aren’t directly affected.

Algorithms a procedure or formula for solving a problem based on conduction a sequence of specified actions. They process customer data to recommend products and services based on analysis of their financial activity.

Customer support - processes and ‘chatbots’ are cheaper and more efficient than employing people to carry out certain customer support activities.

Risk assessment - algorithms used to accurately predict risk of certain investments and loan applications.

Decision making - algorithms are used to automatically asses the visibility of loan and mortgage applications to product an automated decision.

Machine learning algorithms - algorithm that earns their way of analysing data and reaching decisions. They alter their decision making procedure based on the data given and goal assigned with little rules already in place.

Automation and bias - human decision-making is bias and as humans are often prejudiced.

Banking and big data - big data compromises large sets of data to be analysed by computers to reveal patterns and trends.

Environmental ethics - about the ethical relationship between human beings and the natural environmental

Banks embedded position in wider ecosystem - banks don’t exist in isolation, they are part of the financial system which serves and relies on the economy.

Kidder nine checkpoint for ethical decision:
1. Recognize moral issue
2. Determine actor
3. Gather relevant facts
4. Test for right vs wrong issues
5. Test for right vs wrong paradigms
6. Apply resolution principles
7. Look for a third way
8. Make the decision
9. Revisit and reflect on the decision

Unit 6 case study - ethical dilemmas